Friday, November 30, 2012

Washington's Height of Buildings Act has been a subject of debate for years now, but lately, with the Act under Congressional scrutiny, the discussion has taken on more than academic significance.I'm wary of touching the subject at all, since it seems to have become more ideologically polarized than almost any other planning-related topic, generating ample heat but less light (one recent article refers to economists responding to its mere mention with "paroxysms of outrage").Points of view ostensibly grounded in economics and statistics are supported with flip references to generalized principles, comparative urban study is given short shrift where it is not ignored entirely, and each side accuses the other of using economics as thin cover for aesthetic preferences, whether it be the free marketeer's skyscraper envy or the traditionalist's veneration of the mid-rise city.

A thoughtful article by David Alpert in Greater Greater Washington has triggered a vigorous debate, with Kaid Benfield mustering all available arguments in the Act's defense, and Alex Block and George Mason law professor David Schleicher on hand with rebuttals. Graciously citing an earlier post of mine, transportation planner Dan Malouff has issued a rebuttal to the rebuttals, taking a much-needed big picture look both chronologically and geographically, and touting the benefits of the Act for good urbanism.

Without venturing into the aesthetic and form-based arguments, which have been covered exhaustively elsewhere, the hard numbers and economic arguments that have been submitted in opposition to the Act are relatively scarce.I'll attempt to address a couple of them.

This recurrent complaint of high office rents raised by the free market side has made its most recent appearance in Schleicher's article, where he mentions that "[o]ffice space in downtown D.C. is more expensive than in New York's financial district, and 850 square-foot apartments in Anacostia, one of the cheapest areas in the city, now rent for $1300 a month" (yet citing to an article which states that in 2010, DC office rents were higher – barely – than those of New York City, not the financial district).In response I would note:

The number appears to be cherry-picked. The same article cited by Schleicher indicates that rents had been much higher in New York during the preceding five years, and a more recent study of Class A office space in the DC and NY metropolitan markets shows DC rents at only 78% of the level of New York.The 2010 market figure, taken near the bottom of the real estate market, does not appear to be representative of long-term averages, nor is it entirely clear what the geographic unit for comparison was (comparing DC proper to NYC would tend to inflate DC rents relative to NY rents, for instance, as DC is a much smaller fraction of its greater metro area).

Taking into account median incomes, both DC's office rents and residential rents seem cheap compared to NYC, with office rents the cheaper of the two. In recent years, the DC metro area has had the highest median household and individual income in the country, considerably higher than New York.Based on this figure, we should expect to see very high housing costs (and probably also office rents) in the DC region, as income and housing costs are highly correlated throughout the United States, and DC moreover has other unique office demand factors related to the presence of the federal government. Washington does in fact have the second-highest MSA housing costs east of California, yet these are still cheaper than New York's, with the result that DC is in housing-to-income terms far more "affordable" than New York.And yet office rents appear to be cheaper still: DC's housing cost averages 89% of that in New York, while its office rents, averaged over the past several years, seem to be in the range of 70-80% of New York's.This is the opposite of what one would expect based on the views of the Height Act opponents, whose argument supposes that the Act primarily impedes construction of high-rise office space in the central business district.

Apart from a citation to a number from an Ed Glaeser study, which was partly debunked as regards its application to the Height Act in another Atlantic Cities article, there are no other figures presented in Schleicher's article.Schleicher does cite, as is common in this debate, to general supply and demand principles, but Malouff counters him, noting that:

"There is currently around 100 million square feet of office space in downtown DC, which makes it the 3rd largest downtown in America after New York and Chicago. Despite no skyscrapers, downtown DC currently has a greater supply of office space than downtown San Francisco, Boston, Philadelphia, or Los Angeles."

So, broadly speaking, we do have a result that complies with supply and demand principles: DC has a larger supply of office space than comparable cities, and has office rents relatively lower than we would expect based on median incomes and other comparative measures.

I would add that, according to a 2006 Demographia survey, Washington's CBD is consistently found to be larger and denser than those of its peers.For instance, DC's CBD is 1.5 times larger and has 1.7 times the employment density of Houston's. Similarly, it is both 1.3 times larger and denser than Philadelphia's CBD.In both cases, it achieves this despite having less buildable area to work with, due to DC's exceptionally wide streets and generous allotment of parks.It is also much more centralized, containing 18.7% percent of metro employment compared to Houston's 8.9%.Given all this, can we at least allow for the possibility that the Height Act has actually stimulated, rather than impeded, growth and intensification of the downtown business district?This would of course have implications for the usefulness of height limits to other cities and in other contexts, but it's a topic that deserves greater study.

Whatever the true answer might be in this case, more empirical evidence would be helpful in figuring out answers to the economic questions at issue here.Throwing around terms like supply and demand, however, without bothering to investigate what the “supply” is the in the first place, does not greatly contribute to the discussion.One hopes that the forthcoming Congressional study is up to that task, but with the little evidence-gathering that has been done so far seeming to have been in the service of pre-determined conclusions, I am keeping my expectations low.

Friday, November 16, 2012

Chris Bradford has recently run an excellent series of posts featuring the Census Bureau's newly-released data covering population-weighted density.Chris has been an advocate of this density measure (also referred to as "perceived" density) for much longer, though, and has promoted it as a more useful alternative to both standard density and the somewhat more helpful urbanized area density.

At The Atlantic Cities, Richard Florida picked up on the story, noting its significance of these new figures in exploring the relationship between density and productivity.The topic has been addressed at least once before: a 2010 report from the Federal Reserve Bank of New York, updated last year, used weighted population density to find that:

In general, productivity increases by 2 to 4 percent as weighted density doubles.

Productivity increases are correlated with human capital (e.g. skills and education), such that cities with a human capital one standard deviation below the mean have no productivity gains from increased density, while those with high human capital have twice the average gain.

The benefits of density are especially pronounced for certain industries, including professional services, arts, entertainment, information and finance.

Along the same lines, I've drawn up a correlation chart showing the population-weighted density for all metropolitan statistical areas as compared to several other factors, including total metro area population, population change during 2000-2010 both in net and as a percentage, urbanized area density, median home values, median personal income (a stand-in for productivity in many studies), and finally income-to-home value ratio (an indicator of relative housing affordability).Each factor has been compared against every other (raw data is available here).

A few of the things that jumped out at me from the chart:

Income is more strongly correlated with weighted density than total population, although not dramatically so. However, median home values were even more strongly correlated with weighted density.The result is that, for cities of equivalent size, the city with the higher weighted density will generally be less affordable in relative terms, even if incomes are higher (for instance, Sacramento is almost twice as dense as similarly-sized and lower-income Kansas City, but is only two-thirds as affordable).

Although high weighted-density metros have generally higher incomes than low-density cities, they grew more slowly than these cities, perhaps indicating the push and pull forces of housing affordability.

Nonetheless, relativehousing value was negatively correlated with population growth, although not strongly.This suggests a tension between low housing values being a product of low demand, and the attraction of low housing costs in otherwise prosperous cities that have presumably kept prices low through adequate supply.Looking at only large cities bears this out (see below).

Here is the same chart showing only MSAs with more than one million inhabitants as of the 2010 Census:

The sign for affordability relative to population gain has flipped, and more affordable markets are here associated with higher population growth.

Another factor I would have liked to include, had it been available for all MSAs, would have been median transportation cost, since to some extent that would offset the poor affordability of certain high-density cities.

I am skeptical, though, that these figures would make much difference for most cities.Although recent studies have pointed to the transit savings of living in high density areas well-served by mass transit, most American metro areas remain overwhelmingly car dependent. Moreover, while high housing costs cannot be easily avoided, households have more direct control over transportation spending even in low-density cities.

Beyond these points, I'll leave the numbers out there to speak for themselves.